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Defense Contractor Settles $10.5 Million Whistleblower Lawsuit Over Navy Submarine Fraud
A former military contractor in Goose Creek, South Carolina has agreed to pay $10.5 million to settle allegations of defrauding the federal government on contracts related to the U.S. Navy’s next-generation nuclear submarine program.
W International, its CEO Ed Walker, and another Walker-owned company, Precision Material Equipment Handling Co. LLC, reached the settlement Tuesday, just one day after the government unsealed an $80 million whistleblower lawsuit against them.
“Contractors and subcontractors are expected to charge no more than authorized under their contracts with the military,” said Brett Shumate, assistant attorney general and head of the U.S. Justice Department’s civil division. “We will continue to ensure the government gets the prices it bargained for on defense contracts.”
The lawsuit, filed under the False Claims Act, alleged the defendants systematically overbilled the government for labor and materials on contracts for the Columbia-class submarine program, with company executives pocketing significant portions of the fraudulently obtained funds.
John Klausmeier, W International’s former chief operating officer, will receive $1.8 million as the whistleblower in the case. Klausmeier joined the company’s South Carolina operations in 2019 but was terminated in October 2021. The lawsuit had remained sealed since 2022 when authorities were first notified of potential wrongdoing.
Christopher Dillard, a special agent in charge for the Department of Defense’s inspector general, emphasized the impact of such fraud: “Fraud on DoD contracts diverts critical taxpayer resources away from our warfighters. We will continue to work closely with our law enforcement partners to investigate those who seek to exploit the system for personal gain.”
The alleged scheme began in 2019 when Walker relocated W International from Michigan to Bushy Park Road in the Charleston International Manufacturing Center, positioning the company to pursue lucrative government shipbuilding contracts. According to court documents, W International received $80 million in federal funds in 2019 and 2020 to establish a metal fabrication operation capable of producing components for the Navy’s Columbia-class submarines, which are slated to replace aging models in the fleet.
Some of these federal funds were administered through General Dynamics Electric Boat, the Navy’s primary submarine contractor and W International’s largest customer. Electric Boat was also named as a defendant in the lawsuit for allegedly failing to provide proper oversight, though it is not part of Tuesday’s settlement. A spokesperson for Electric Boat declined to comment on the case.
The lawsuit detailed several fraudulent practices. In one example, W International sold hundreds of welding/leveling tables to Electric Boat for $15,000 each, while their actual production cost, including labor, was only $2,100 per table. The company also allegedly misappropriated federal funds intended for welder training and certification, providing minimal formal instruction and instead relying primarily on “on-the-job” training.
Court documents further alleged that W International engaged in bid rigging, double-billing for labor costs, and using shell companies to conceal inflated expenses. The lawsuit claimed these practices not only defrauded taxpayers but also “jeopardized the efficient production of the submarine fleet and jeopardized the lives of workers and sailors” due to substandard quality control.
Prior to its South Carolina expansion, W International had operated in Michigan, where it initially aimed to supply the automotive industry with fabricated metal products. The lawsuit stated the company accumulated millions in debt and struggled to pay employees and vendors before pivoting to defense contracts in the Southeast.
South Carolina’s Department of Commerce had welcomed the company’s relocation in late 2018, announcing W International’s plans to invest $35.2 million and create 600 jobs at the Goose Creek facility. The state provided tax credits and a $2 million grant to support the expansion.
Last year, military contractor Newport News Shipbuilding, a division of Huntington Ingalls Industries and the Navy’s largest shipbuilder, acquired W International’s assets while the federal investigation was ongoing. Newport News Shipbuilding reportedly did not assume any of W International’s legal or financial liabilities and has maintained operations at the Goose Creek facility, retaining most of the company’s employees.
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7 Comments
Contractor fraud is an ongoing challenge, unfortunately. While the specifics of this case aren’t fully known, it’s encouraging to see the government taking action to recoup defrauded funds. Hopefully this serves as a deterrent to others who might be tempted to overbill the military.
Allegations of systematic overbilling on defense contracts are very serious. Glad to see the government pursuing this case and recovering $10.5 million. Oversight and accountability are crucial to ensure taxpayer money is spent responsibly on national security priorities.
Contractor fraud in the defense industry is a real problem that needs to be addressed. This $10.5 million settlement is a step in the right direction, but I wonder if there are deeper issues that need to be examined. Transparency and integrity should be the top priorities.
This type of contractor fraud is troubling, especially when it involves military programs like the nuclear submarine project. It’s good to see the government pursuing these cases and recovering misused funds. Transparency and integrity in defense contracting should be a top priority.
It’s good to see the government taking action against contractor fraud, even if the details are still emerging. $10.5 million is a substantial amount, but the real question is whether this was an isolated incident or part of a broader pattern. Continued vigilance is needed to protect taxpayer interests.
Concerning to hear about this contractor fraud case, especially since it involves sensitive military programs like the nuclear submarine. While $10.5 million is a sizable settlement, I wonder if there were any criminal charges or if this was simply a civil case. Hoping there are broader reforms to improve accountability in defense contracting.
Interesting case of government contractor fraud. $10.5 million is a sizable settlement, though the full details of the alleged overbilling are still unclear. Oversight and accountability are crucial for defense contracts to ensure taxpayers get fair value.